COVID-19 Business Interruption Update: FCA Test Case First Hearing and Guidance for Insurers

First Hearing – Case Management Conference (CMC)

On 16 June the first hearing (Case Management Conference) of the FCA Test Case took place remotely at the Commercial Court.  At the hearing, the court granted an order that the case will be expedited in accordance with the proposed timetable (i.e. with a final hearing from 20 July to 30 July) and that the Financial Markets Test Case Scheme will apply. The court confirmed that the case will be heard by a 2-judge panel consisting of Mr Justice Butcher and Lord Justice Flaux.

There was some early disagreement between the FCA and Insurers as to the scope of the declarations sought from the court by the FCA, in particular whether the court should make any ruling as to the actual prevalence of COVID-19 in the UK during the relevant period, and the extent to which any such finding would depend on fact and/or expert evidence.  These matters will be considered further at the second CMC on 26 June.

The insurers’ Defences are due to be filed on 23 June and at that stage we will see the full extent and basis on which the insurers will resist the declarations sought by the FCA.

The second CMC will be live-streamed on 26 June via https://fl-2020-000018.sparq.me.uk/

Guidance to Insurers

The FCA’s guidance for insurers and intermediaries has now been finalised and came into effect on 17 June. It is equally useful for policyholders seeking to understand the process and how their claim may be affected.  Important points to note include the following.

Summary of Test Case

In summary, the core questions that the test case seeks to resolve are:

i. issues of coverage in relation to ‘disease’ and ‘denial of access’ clauses (including any relevant exclusions); and

ii. causation (including any relevant ‘trends clause’ or equivalent wording).

The test case is not seeking to resolve, in particular:

• coverage issues relating to clauses that have an exhaustive list of diseases which does not include Covid-19
• coverage issues relating to clauses which require the disease to be present on the insured premises
• issues concerning misselling of policies
• other issues flowing from the determination of the questions in the test case such as aggregation, additional causation issues specific to loss of rent and similar claims under a property owner’s policy, and the specific quantum of any particular claims

Policy Review

Insurers are required to examine each of their relevant policy wordings to determine whether the outcome of claims under the policy will be affected by the resolution of the Test Case.

Insurers are to notify the results of their review to the FCA by 8 July.  The FCA then intends to publish a comprehensive list of insurers and policy wordings that will be affected by the outcome of the Test Case.

Claims Review

The guidance also sets out quite detailed requirements for communicating with policyholders during the Test Case.

In particular, by 15 July 2020 insurers should individually notify policyholders whose claims or complaints for business interruption losses related to the coronavirus pandemic under relevant non-damage business interruption policies are outstanding or have already been declined (or had an adjustment or deduction for general causation) of:

• whether their claim or complaint is a potentially affected claim or a potentially affected complaint and the implications of that (including the FCA’s expectations of the insurer in respect of such claims or complaints under this guidance), or
• the reasons why their claim or complaint is not a potentially affected claim or potentially affected complaint, and the implications of that.

Insurers are required to continue to communicate with policyholders as and when any developments occur in the case that may affect the outcome of their claim.

Any policyholder whose claim has been declined or remains outstanding should therefore follow up with their insurer or broker if they have received no communication by 15 July at the latest.

Clock Stopped on Time Limits

Time limits for making claims or taking any other step under policies, or for making complaints to the FOS are suspended from 17 June until final resolution of the Test Case.

Whilst most claims should already have been notified before 17 June, this means that any other time limits expressed in the policy, for example in relation to proving calculations of loss, or taking action against the insurer will not apply while the test case is ongoing. That does not stop policyholders from taking such steps or pursuing their claims.

Settlement

The guidance expressly recognises that claims may be settled between insurers and policyholders while the test case is ongoing.  However, when making any offer to settle, insurers should inform the policyholder about the test case and its implications. In particular, they should tell the policyholder whether the final resolution of the test case may affect the insurer’s decision about their claim, and the implications of accepting or rejecting an offer made on a full and final settlement basis.

Reassessment of Claims following Final Resolution

Upon final resolution of the Test Case, insurers should reassess all potentially affected claims, apply the judgment, and promptly inform the policyholder of the outcome of the reassessment.